Eli5: When there’s an economic bubble I’ve heard goods described as “overvalued”; how do economists determine if something is overvalued?

Question

After all, isn’t pretty much everything just worth whatever people are willing to pay for it?

In: Economics

Answer 1

Overvalued means the value comes from “artificial” demand. People buying Not because they want the product, but because they speculate the price will increase further to sell for a profit.

If something is a bubble or not If often hard to see before it bursts. Some things hype because there really is a chance that the value of the good will have that price without speculative buyers. (This is especially true for innovative stocks, like startups with a technology that might go through the roof). A bubble is defined as something that is priced in a way that it can’t keep that price up without new speculative buyers.